The move will help mills hit by a free-fall in local sugar prices that was triggered by five years of surplus output. Citing poor finances, mills have not been paying millions of dollars to cane growers, who form a major voting bloc.
The sugar industry has been going through a crisis that has led to an arrears in payment of 60 billion-65 billion rupees ($905.87 million-$981.35 million), and the decision for the government to shoulder some of the payments would help mills clear cane dues to farmers, Coal and Power Minister Piyush Goyal told a news conference.
“Under this scheme, the production subsidy will be given to offset the cost of cane and facilitate timely payment of cane prices to the farmers,” he said.
The move is aimed at wooing politically influential cane growers and helping sugar mills recovering from a global glut.
Shares of Indian sugar companies have been rising on expectations of government help, with stocks of Shree Renuka Sugars (SRES.NS), Simbhaoli Sugars (SIMB.NS) and Bannari Amman Sugars (BANN.NS) shooting up further on Wednesday.
Last month Reuters reported that India, the world’s biggest sugar consumer and the No. 2 producer after Brazil, was considering directly paying millions of cane farmers.
Separately, the government has asked mills to export 4 million tonnes of sugar in the 2015/16 season beginning October.